Remember the trader who told the BBC that “Goldman Sachs rules the world”? This is his column
Our columnist Alessio Rastani is the self-proclaimed trader who shocked the world by declaring live on BBC News that he goes to bed “every night dreaming of the next recession” and that “Goldman Sachs, not the governments, rule the world”. He’s a controversial figure, not least because he’s a self-taught non-institutional trader with no FSA license. But he certainly isn’t shy about sharing his views. Do you agree with his words? (His words are his own, and in no way endorsed by LondonlovesBusiness.com)
A few weeks ago I was invited to a heated debate about Bitcoin on the London Real TV programme.
If you’ve never heard of Bitcoin, essentially it is a virtual or digital currency that has no centralised exchange. You can use it to make purchases (provided the merchant accepts Bitcoins as a form of payment).
Anyway, the guest on the “Bitcoin debate” show was Russia Today’s Max Keiser who some years ago helped to bring attention to bitcoin. He himself is also a “die hard” Bitcoin investor.
While I don’t agree with all of Max Keiser’s views, I do share and admire his “no-nonsense” style and passion for being straightforward.
Keiser made some good points in favour of Bitcoin, the main one being that it will be less subject to manipulation and control by political governments and financial corporations (although not everybody agrees on that).
I personally was not sold on the whole Bitcoin “hype”. Perhaps “hype” is not the right word. “Hysteria” is a better way to describe it.
Around the beginning of April 2013 suddenly everybody started talking about Bitcoin. My email inbox would sometimes be jammed with questions about Bitcoin.
Why all the fuss?
Take a look at this chart of Bitcoin:
As you can see, Bitcoin had made a “hyperbolic” move, rising from $13 in January 2013 to $240 in April.
That is a 1750% move in just four months!
These “hyperbole” moves have a distinct pattern (see above chart) and they are characterised by a market that moves in one direction “too far and too fast”.
Unfortunately these “hyperbolic” moves are also cursed. Meaning that they are unstable and like a house of cards they typically implode on themselves.
These patterns are also usually accompanied by a flurry of investor emotions, as greed and irrational behaviour overcomes any logical thinking.
As former Federal Reserve Chairman, Alan Greenspan, recently explained, it is people and their irrational behaviour that brings about “bubbles” and their inevitable collapse.
Take another recent example with what happened with gold:
Notice how the chart of gold resembles that of Bitcoin. Both exhibited the symptomatic “hyperbole” pattern – and both suffered its curse.
After gold’s meteoric rise from $800 in 2008 to just above $1900 in 2011, speculations were that gold could go to $5,000 – and yes, even $10,000!
This excessive bullishness was perhaps the best sign that gold had topped. Since 2011’s major high, gold has fallen by 33%.
Now take a look at what was perhaps the most well-known of all bubbles and bursts of stock market history. The dotcom crash of 2000:
Many people that I have spoken to over the years still remember the dotcom era with a margin of pain. Millions of people made money during the “bubble” phase, only to lose it all when the curse of the hyperbole showed its ugly head.
It is for this reason that I remained sceptical about buying Bitcoin back in April 2013.
Just as well, Bitcoin has fallen since April from $240 to $75 – a loss of 69% in three months!
So the next time you find yourself caught up in the “hyped-up” investment opportunity of the day – and it does NOT matter what it is – take a good look at the chart of that market.
If it looks anything like the charts I’ve shown you today, don’t just walk away… RUN!
Otherwise you also will suffer the curse of the hyperbole…
Alessio Rastani gained fame and caused controversy last year by stating live on BBC news that he “dreams of another recession” and that “Goldman Sachs, not governments, rule
the world”. The YouTube clip has since been watched over two million times, and Alessio has subsequently been interviewed by figures such as Sir David Frost. His website is LeadingTrader.com.